Boeing Seeks to Strengthen Role in German Market

At a time when trans-Atlantic relations are particularly frosty, Boeing, the U.S.-based aerospace company, made an unusual move this week by hiring German power-broker Horst Teltschik as an adviser. His mission: to look for lucrative business opportunities in his home country and help give the ailing aerospace giant a much-needed shot in the arm.

"I'm no ordinary lobbyist," says Teltschik. Indeed, he was a security adviser to former Chancellor Helmut Kohl who has also served as a top executive at many firms, including BMW. But when Teltschik reached BMW's mandatory retirement age two years ago, the carmaker sent him packing.

One company's loss, so it would seem, is another's gain. "The great thing about American firms is that age doesn't matter -- only your level of experience," he says.

Boeing, no doubt, is hoping to take advantage of Teltschik's gold-plated connections and gain a foothold in the German market -- potentially worth over $100 billion over the next 20 years. That's money in the bank for a company that's been struggling financially, mostly due to increased competition from its arch rival, Europe-based Airbus, and the ripple effects of Sept. 11, 2001.

Making Up For Big Losses

Airbus dealt Boeing a serious blow this past November. The company, a division of the European Aeronautic Defence & Space Co. (EADS), surpassed Boeing's sales for the first time in its 30-year history, posting an order backlog of 1,470 planes -- 318 more than its stateside rival. Philippe Camus, EADS's executive director, threw a huge party in Paris to mark the occasion, inviting jazz musician Wynton Marsalis to play for the crowd.

It's not that Phil Condit, Boeing's CEO, doesn't like jazz, but he's hoping there won't be a repeat performance. However, he acknowledges that Boeing has some pretty serious hurdles to overcome.

"The current situation in the airline industry is difficult the world over, but particularly in the United States. A combination of the economic downturn -- the first indications of which we saw in the fall of 2001 -- and, of course, the Sept. 11 terrorist attacks have dramatically affected the airline industry," he says. "The U.S. market hasn't bounced back to the level it was three years ago."

It looks likely that Airbus will continue to pose stiff competition in the year to come. Boeing's sales over the last two years have declined from 527 planes in 2001 to a projected 280 in 2003. Airbus is expecting orders of 300 this year, 20 more than Boeing.

Low-cost airlines calling the shots

The fate of both companies over the past year has largely been determined by orders from low-cost airlines. In a troubled airline industry, these carriers are among the few raking in the profits -- and placing orders for new airplanes.

Airbus signed a deal with the British airline Easyjet in 2002 for 120 planes. It was that order that helped Airbus edge out Boeing. In a countermove, Boeing recently secured a deal with the Irish airline Ryanair for 103 planes -- worth more than $6 million.

Boeing may also make a comeback based on sales to the military, not the civilian, sector. For 2002, Boeing's military business had a profit of $1.7 billion on sales of $14 billion, up from a profit of $1.3 billion on sales of $12.5 billion in 2001. The company will likely benefit from increased defense spending in the United States. President George W. Bush has proposed raising defense spending by $120 billion to $451 billion by 2007.

EADS has a less-developed defense sector -- Airbus, its commercial aircraft division, accounts for more than 80 percent of the company's profits.

Be they hard-fought gains in the commercial airline industry or increased business from the military sector, Condit thinks Boeing's future looks bright. "Our business is one-of-a-kind -- it's very long term," he says. "Whether or not we get military or civil orders, both will last us over the long run."

Trans-Atlantic tensions not a problem

Teltschik and Condit met this week in Berlin to discuss strategy. But, as is so often the case when Americans and Germans get together these days, the strained trans-Atlantic relationship was up for discussion. Despite recent rumblings that tensions might spill over into the business sector, neither believes there will be long-term negative implications.

"Governments come and go, and the current crisis is between one administration and another -- not between the two countries," says Teltschik, a self-proclaimed Atlanticist. Condit concurs: "Relations, over the long term, are good -- and they will stay that way; there may be problems here and there, but compare that to the past and look where we are today."

Both are hoping their transatlantic partnership will be long lasting -- and profitable. With $100 billion at stake, they certainly have enough incentive.